Directed and written by 42-year-old Gavin Hood, the film features a searing performance by Presley Chweneyagae as a gun-toting, emotionally dead gangster who suddenly learns that human life has some value when he is forced to care for a baby he has kidnapped.
"God Bless Africa!," Hood said, upon receiving his award. "We may have foreign language films, but our stories are the same as your stories. They are about the human heart and emotion."
The film was based on famed playwright Athol Fugard's only novel, a 1950s tale about the dehumanising effects apartheid was having on the lives of black South Africans.
With Fugard's permission, Hood updated the story to the present day and made its main character a grown-up Aids orphan.
Hood has said the changes allowed him to present the despair of post-apartheid South Africa as well as the violence that lurks beneath the surface. But Hood also insisted that his aim was to tell a universal morality tale.
The other nominated films were the Italian family drama Don't Tell, the French war story Joyeux Noel (Merry Christmas), the German World War II film Sophie Scholl - The Final Days, and the Palestinian film Paradise Now.